17 September 2021 • 18 min read
How to Avoid China Supplier Scams
For importers, buying goods from China comes with benefits as well as the risk of fraud – whether it’s ending up with substandard goods or losing money to fake companies. Don’t be a victim of a scam. Follow these best practices
China is an unmatched manufacturing giant supplying goods to all corners of the world. While it is a land of opportunity for importers, supplier fraud in China is a reality and importers must be on their guard while sourcing goods from this country.
- What are the different types of supplier scams in China?
- What are the warning signs importers should watch out for?
- What should importers who have been scammed do?
- How can they avoid being scammed in the first place?
These are the questions we will answer for you in this article. But before we get to it, let’s start with a basic question.
What counts as fraud?
It is fraud when the supplier deliberately deviates from an agreement. For example, if they send the buyer goods that do not meet agreed upon quality standards.
“Any little fraud [example, pretending they are a manufacturer when actually they are a trading company] IS a fraud. If they lie about this, they will lie about other things too,” says the award-winning China Law Blog, run by the international law firm Harris Bricken.
Click here for everything you need to know about importing from China to India
Types of China supplier scams
From small lies to big swindles, China supplier scams come in all shapes and sizes. Listed here are the most common frauds perpetrated by suppliers in China:
- Poor quality or wrong goods: Your China supplier sends you substandard goods that don’t meet your quality standards or don’t match the samples. Not all manufacturers in China are capable of making custom products. Despite their limitations, they overpromise and then fail to deliver. This counts as fraud rather than a mistake
- Counterfeit goods: You end up with counterfeit goods, the selling of which might land you in a legal soup. Counterfeits account for 3.3 percent of global trade and the majority of these goods originate in China, says a 2019 report by the Organisation for Economic Cooperation and Development (OECD). China’s first-to-file intellectual property (IP) laws are to blame to a great extent. In China, trademarks are awarded to those who apply for it first and not necessarily to the original owner. This encourages unscrupulous manufacturers to produce and sell goods in violation of copyrights
- Vanishing act: The supplier cuts off communication and disappears after receiving a deposit or a fee for samples from you
- Sudden price increase: The supplier arbitrarily increases the product price after you’ve sent them a deposit. Or, the supplier raises the price for the same items in the next order without a justifiable reason (such as an increase in production cost or raw material cost)
- Fake company: Your supplier’s claims of being a legitimate business are false. This is a tricky scam because sometimes, the fake company might seem perfectly genuine on the surface with a registered address and professional website. The fake company scam can extend to freight forwarders, quality inspection and audit firms, and trademark, copyright, domain registration, and patent agents
- Paper tiger: A paper tiger is a supplier who fraudulently claims to be an industry leader in their area of expertise but fails to deliver on promises
- New bank account: The supplier asks you to make a payment to a personal bank account or to a different recipient than the one mentioned in the contract
- Late delivery: The supplier fails to deliver your goods on time
- Transparency scams: The supplier subcontracts your order or changes a component without your knowledge and approval
To know about best practices for communicating with your China supplier, click here
What to do if you’ve been scammed
If you end up the victim of a China supplier scam, here’s what you can do, based on advice from legal experts and industry insiders:
1. When you’re stuck with poor quality goods
- Write to the supplier informing them of the problem and demanding a solution
- If they don’t fix the problem, you may consider litigation or arbitration for breach of contract
- If you take this course of action, the first step is to hire a lawyer in China
- Through the lawyer, send the supplier a demand letter threatening to take them to court or arbitration unless they resolve the problem by a specific deadline
- If the supplier fails to respond to the demand letter, you may choose to take further legal action
- You can also publicise the supplier’s fraudulent act on online discussion boards for importers
Just remember that engaging in legal action abroad can be costly.
2. When the supplier takes off with your money without delivering the goods
- Since this is outright fraud and not just a quality dispute, it is advisable to register a formal complaint with the Chinese police in the jurisdiction where the supplier operates. The complaint should be made either at the county (rural) or district (urban) level. However, the police have the discretion to either accept and act on your complaint or reject it. Hiring a local lawyer who has good connections with the police can help take the investigation forward
- Simultaneously, you can try to negotiate a settlement with the supplier. A formal police complaint will help put pressure on the seller. The supplier might use delaying tactics or ask for time, so it is important to proceed swiftly
Importers who have been scammed by their suppliers can tap the following sources in China for additional help:
- They can register a complaint with and seek assistance from the Chinese Ministry of Commerce by calling its helpline or using its online platform. Both services are available in English only
- They can approach the China Council for the Promotion of International Trade, a state organisation that helps resolve commercial disputes
- Search the website of the National Enterprise Credit Information Credibility System for basic information on Chinese registered businesses. You can find details such as registered address and solvency status. However, the website is in the Chinese language.
How to avoid being scammed
The chances of a fraudulent supplier fully compensating you for your losses are rare. In the case of a quality dispute, even if the goods are replaced, you might still suffer losses. Therefore, it is better to avoid being scammed in the first case. Here are three steps you can follow:
1. Watch out for warning signs
- The supplier refuses to produce a business licence or other documents requested by you for verification
- They rush you to close a deal and transfer an initial deposit
- They say they can produce any and every product
- They are inconsistent and slow with their communication
- They fail to send you a sample
- They change the mode of payment (bank to wallet, for example) or ask you to wire the money to a different bank account or recipient
- Their website is incomplete and provides minimal or no contact information
2. Verify, verify, and verify again
To avoid hassles down the line, importers must be meticulous about conducting due diligence at the stage of choosing a supplier itself. Here are the steps to verify a supplier in China:
- Ask for their business licence. If they refuse or stall for time, they probably have something to hide
- Cross-check this information by getting in touch with the local government office under whose jurisdiction the factory falls and requesting their record of the factory’s registration
- Check the supplier’s website and contact details. Call their office and send an email to their official email address. If you don’t receive a response after repeated attempts, there’s probably something wrong
- Look for the supplier’s profile on multiple online directories (Alibaba, Made in China, Global Sources, etc) and check for consistency in the information provided. Also check customer reviews
- Conduct a physical audit of the factory to verify if the manufacturer is indeed a manufacturer and not a middleman and whether they have adequate production capability. You can make a trip to China for this or hire a third-party agency, such as a China sourcing agent, to do it for you
- Check if the supplier has a Quality Management Certificate, which ensures that the quality of products and services provided are consistent. A factory must pass an audit in order to receive this certificate
- Ask for bank details and verify that the account holder’s name matches the supplier’s name
- Request a sample before signing the purchase order
- Ask the supplier for buyer references, with the contact details of the other buyers
Note: One way of telling whether your supplier is a manufacturer or a middleman is by checking their location. Under China’s cluster manufacturing system, each region specialises in a specific product. If the supplier is located far from this region, they are probably a reseller.
3. Draw up a foolproof contract
Given the language barrier, importers sourcing goods from China must put all their requirements in writing, as clearly as possible. Drawing up a solid contract starts with including the following details:
- Product specifications and quality standards
- Choice of raw materials
- Mode and date of delivery
- Mode and date/dates of payment
With a little effort, it is possible to work with ethical and like-minded suppliers in China and turn your China dealings into a successful and fruitful experience.
Want to know about quality control practices in China? Read our guide here
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